When I evaluate mutual funds, I look beyond returns. I want to know how much a fund’s value bounces around. That’s where volatility comes in. Specifically, 200-day volatility gives me a clear view of a fund’s risk behavior over time. It’s not just about how much a fund earns — it’s about how predictably it earns it.
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What Is 200-Day Volatility?
Volatility refers to how much a mutual fund’s price or net asset value (NAV) fluctuates over time. The 200-day volatility focuses on a fund’s price swings over the past 200 trading days, roughly equal to 9–10 calendar months.
It’s a measure of risk, but not the same as losing money. A fund with high volatility might gain or lose more in a short period. A fund with low volatility is more stable but may have lower returns.
How Do I Calculate It?
To calculate annualized 200-day volatility, I use the standard deviation of daily returns over the last 200 trading days, and scale it to annual terms.
The formula looks like this:
\sigma_{200} = \sqrt{252} \times \text{std\_dev}(r_1, r_2, ..., r_{200})Where:
- r_t = daily return on day t
- \operatorname{std_dev} = standard deviation of those returns
- 252 = average number of trading days in a year
For example, suppose a mutual fund has the following simplified set of daily returns (hypothetically over 5 days for clarity):
- Day 1: 0.1%
- Day 2: -0.05%
- Day 3: 0.2%
- Day 4: -0.1%
- Day 5: 0.0%
Then:
- Calculate the mean return
- Find the squared deviation from the mean for each day
- Average those deviations
- Take the square root (standard deviation)
- Multiply by \sqrt{252} to annualize
In real practice, I use a spreadsheet or Python to automate this for 200 data points.
Why Does 200-Day Volatility Matter?
Volatility tells me how smooth or bumpy the ride is when I invest in a mutual fund. A fund might post a 10% return, but the journey could feel very different depending on the volatility.
For example:
| Fund | 1-Year Return | 200-Day Volatility | Interpretation |
|---|---|---|---|
| Fund A | 10% | 4% | Smooth, low-risk fund |
| Fund B | 10% | 18% | Wild swings, higher anxiety |
| Fund C | -5% | 6% | Modest losses, but still stable |
| Fund D | -5% | 20% | Risky and negative — avoid |
I never look at returns alone. I want to know the return per unit of volatility, known as the Sharpe Ratio (adjusted for the risk-free rate):
\text{Sharpe Ratio} = \frac{R_p - R_f}{\sigma_p}Where:
- R_p = fund return
- R_f = risk-free rate (say 2%)
- \sigma_p = standard deviation of returns
This ratio shows me if I’m being paid enough for the volatility I take on.
Typical 200-Day Volatility by Fund Category
Here’s a general breakdown of 200-day volatility levels by mutual fund type:
| Fund Category | 200-Day Volatility Range (Annualized) | Risk Level |
|---|---|---|
| U.S. Treasury (Short-Term) | 1% – 2.5% | Very Low |
| Investment Grade Bonds | 2% – 5% | Low |
| Balanced/Allocation Funds | 4% – 9% | Medium |
| U.S. Large Cap Equity | 12% – 18% | High |
| U.S. Small Cap | 18% – 25% | Very High |
| Emerging Market Equity | 20% – 30% | Very High |
| Sector Funds (e.g., Energy, Tech) | 25% – 40% | Extreme |
So if I hold a technology sector mutual fund, I should expect serious price swings. If I can’t sleep at night with a 20% drop, I stay away from high-volatility options.
Real Fund Example: Comparing Volatility
Let’s compare three popular mutual funds:
| Fund Name | Category | Annual Return (10Y) | 200-Day Volatility | Sharpe Ratio |
|---|---|---|---|---|
| Vanguard 500 Index Fund (VFIAX) | U.S. Large Cap | 11.5% | 15.4% | 0.61 |
| Fidelity Contrafund (FCNTX) | Growth | 12.0% | 17.3% | 0.58 |
| Vanguard Total Bond Market (VBTLX) | Bonds | 3.9% | 3.6% | 0.53 |
Notice how even though the bond fund had lower returns, it still has a decent Sharpe Ratio because the volatility is so much lower. That’s why I include both equities and bonds — they serve different purposes.
Volatility Isn’t Always Bad
High volatility isn’t a dealbreaker. In fact, if I’m young and investing for 20–30 years, I might embrace volatility. Over time, the ups and downs smooth out. And higher volatility often accompanies higher long-term returns.
But if I’m near retirement or withdrawing income soon, I reduce volatility exposure to preserve capital.
Using 200-Day Volatility in Portfolio Construction
When I build a portfolio, I look at both individual fund volatility and portfolio volatility. Combining funds with low correlation can reduce overall risk.
Suppose I combine two funds:
- Fund A: 16% volatility
- Fund B: 4% volatility
- Correlation = 0.1
The portfolio volatility formula is:
\sigma_p = \sqrt{w_A^2 \sigma_A^2 + w_B^2 \sigma_B^2 + 2 w_A w_B \sigma_A \sigma_B \rho}Where:
- w_A, w_B = weights of funds
- \sigma_A, \sigma_B = individual volatilities
- \rho = correlation between funds
Even if both funds are volatile, low correlation can reduce overall swings. That’s why I use volatility in risk parity and modern portfolio theory approaches.
Historical Context: Volatility in Crises
Let me give you some examples:
- 2008 Financial Crisis: U.S. equity mutual funds had 200-day volatility spikes exceeding 40%
- 2020 COVID Crash: Some sector funds exceeded 60% annualized volatility
- 2022 Inflation & Rate Hikes: Bond funds that were normally stable saw 200-day volatilities rise from 2% to over 8%
This matters because volatility affects both NAV and investor behavior. High volatility leads many investors to panic-sell, locking in losses.
My Practical Takeaway
Here’s how I use 200-day volatility in real life:
- I track it quarterly to catch risk drift
- I compare funds in the same category before choosing
- I look at volatility-adjusted returns, not just raw returns
- I adjust allocations when volatility spikes unexpectedly
- I rebalance when risk changes beyond thresholds
Tools I Use to Track Volatility
- Morningstar: Shows 3-year standard deviation
- Yahoo Finance: Export price data to Excel for custom calculation
- Portfolio Visualizer: Analyzes volatility and correlation
- Google Sheets with IMPORTHTML or IMPORTDATA: Automate fund data imports
Final Thoughts
Volatility isn’t just a technical metric. It’s a reflection of the emotional ride an investor experiences. The 200-day volatility figure tells me if I can handle the heat — not just how hot it might get.
When I pick mutual funds, I always ask: “Am I okay with the journey, not just the destination?” If the answer is yes, then I’m investing intelligently — not just chasing performance.
